April 2, 1993
TO: BOARD OF GOVERNORS NO. 27-93
SEC RULES MEMBERS NO. 34-93
ACCOUNTING/TREASURERS MEMBERS NO. 9-93
RE: SEC APPROVES NASD'S PROPOSED REPORTING SYSTEM FOR HIGH YIELD
BONDS
__________________________________________________________
We are pleased to report that at a recent open meeting, the
Securities and Exchange Commission approved the proposal of the
National Association of Securities Dealers to establish rules for
quotation and transaction reporting in the high yield bond
markets. The Institute had submitted a comment letter to the SEC
strongly supporting the NASD's proposal. A copy of the SEC's
release approving the proposal is attached.
As indicated in the release, the rule proposal authorizes
the NASD to establish and operate the Fixed Income Pricing System
("FIPS"), an electronic facility that will be used to collect,
process and disseminate real-time, firm quotations for 30 to 50
of the most liquid high yield bonds in the top tier of high yield
securities. Under the proposal, the NASD will adopt rules
requiring NASD members to report to the NASD all transactions in
high yield bonds traded over-the-counter (for regulatory
purposes) and also requiring real-time trade reporting for
securities to be included in FIPS. The proposal also authorizes
the NASD to disseminate through FIPS, and make available to
vendors, high/low trading ranges and accumulated volume in each
bond quoted in the system on an hourly basis.
According to the attached release, it is anticipated that
the number of FIPS securities will begin at approximately 35
bonds and will grow to approximately 50 by the end of the first
year of operation. The release indicates that the system is not
designed to limit the number of bonds to 50, and that the number
could increase if experience suggests there is adequate liquidity
in the high yield markets to support the addition of more bonds.
The Institute had recommended in its comment letter that
consideration be given to expanding the number of bonds to be
included in FIPS as soon as possible, in view of the significant
benefits we expect the system to provide to investors in high
yield bonds (such as investment companies).
Matthew P. Fink
President
Attachment